Expected payout depends on the total amount staked. With a large amount staked it's only a couple percent annually; with a small amount it's up to 18% annually. The idea is an equilibrium will be reached in the middle somewhere.
How are participants prevented from simply splitting up their stakes?
The return isn't based on how much you stake. It's based on how much everybody stakes. It's targeting an approximate amount of total ETH staked and doesn't really care how much is staked by each individual.